Credit spreads in the Gulf Cooperation Council (GCC) bond markets have narrowed again after initially widening in the early days of the Middle East conflict, particularly for high-yield real estate corporate debt. Markets are now trading largely flat to slightly tighter, partly supported by rising yields on US Treasury securities, according to an analyst.
Fady Gendy, Senior Fixed Income Portfolio Manager at Arqaam Capital, said the increase in US yields and the relative stability of bond cash prices helped drive the tightening in spreads. Risk appetite also began to recover from late Tuesday and continued into Thursday, with renewed buying interest across the region. This rebound, he noted, underscores the resilience of the market, as regional credit spreads have returned to roughly flat or slightly tighter levels just three to four days after the attack.
Investment-grade bonds remain only marginally wider, whilst spreads have tightened for some high-yield sovereign issuers but widened significantly for high-yield real estate corporate debt, he added.
Earlier in the week, the market experienced some deleveraging as Asian and global fund managers sold GCC credit. However, the move is largely viewed as part of a broader risk-off strategy rather than a structural withdrawal from the region, which continues to benefit from strong economic fundamentals.
Additional selling pressure also came from passive fund managers tracking the JP Morgan Global Diversified Emerging Market Bond Index after JPMorgan announced last week that it would remove the United Arab Emirates from the index in phases starting March 31.
From a sector perspective, banks have outperformed corporates during the recent risk-off period, Gendy said. This strength has been visible in both senior bank bonds and subordinated issuances, which held up better than corporate credit.
Within corporate bonds, real estate issuers—particularly those based in the United Arab Emirates—have been the weakest performers, reflecting the frequency of attacks targeting locations in Dubai and Abu Dhabi.
Looking at yield curve movements, longer-dated bonds have underperformed compared to intermediate maturities, whilst short-dated bonds—especially in investment-grade names—have performed the strongest. This has been supported by their shorter remaining maturities and typically stronger local demand for short-term debt.
Market activity has also improved, with buying flows returning in the second half of Tuesday and continuing through Thursday, signalling renewed engagement by investors following the initial risk-off reaction. Demand has been broad-based, covering both short- and long-dated bonds, investment-grade issuers, and even some beaten-down real estate credits.
Issuance pipeline shuts
Meanwhile, the bond issuance pipeline—already seasonally quiet during Ramadan—has effectively come to a halt. Following the most recent deal from Omniyat, a Dubai-based real estate developer, the new-issue market has largely closed, Gendy said.
He expects the market to remain shut for both high-yield and investment-grade borrowers, particularly for high-yield issuers, until conditions stabilise and the conflict eases.
Once the situation normalises, a backlog of issuance could emerge as borrowers return to the market—especially if credit spreads remain tight and investors who had temporarily withdrawn from the region begin to gradually re-enter.
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